COMMERCE : East Europe Looks to EC Markets : 12-nation community will be asked to help poor cousins, drop trade barriers.

By JOEL HAVEMANN

June 19, 1993 12 AM PT

TIMES STAFF WRITER

BRUSSELS — When the leaders of the 12 European Community countries meet in Copenhagen on Monday and Tuesday, their poor cousins from Eastern Europe will be watching with particular interest.

EC leaders, who rarely miss a chance to sing the virtues of Eastern Europe’s economic reforms, will be asked to reward their neighbors by agreeing to buy more of their goods.

The EC still maintains special barriers to Eastern European agriculturalproducts, textiles and steel--three sectors in which Eastern European producers could compete effectively for Western European markets.

“As soon as we export something successfully, the West reacts with increased duties, quotas and contingents,” Czech Republic Prime Minister Vaclav Klaus complained in a recent interview with a German newspaper. “This is really very negative.”

It’s not so negative for the EC. Its 12 nations, which ran a trade deficit with Eastern Europe throughout the years of Communist domination, has turned the deficit into a surplus that reached $2.5 billion last year. To be sure, the EC bought more from the East than before--almost twice as much as in the mid-1980s. But EC sales to the newly opened markets of the East more than doubled in that same period.

When six Eastern European countries--Poland, the Czech Republic, Slovakia, Hungary, Romania and Bulgaria--became associate EC members starting in 1991, the EC agreed to break down many of its barriers to those countries’ products over a five-year period.

But some barriers, particularly in agriculture, were to remain in place until the eastern countries became full-fledged EC members--probably not before the next decade at the earliest. EC tariffs on Eastern European bread and pastry typically range from 50% to 80%, for example, and tariffs on pasta are in the 20% to 45% range.

And the EC backtracked on plans to scale back quotas and duties on steel when Western European producers demanded protection from manufacturers from the east, where labor costs still average about 5% of levels in the west.

“The EC’s response to date has been somewhat grudging and overcautious,” said Alasdair Smith, an economist at England’s Sussex University. He pointed out that agriculture, textiles and steel are declining industries in Western Europe, with well-established lobbies that are seeking protection from foreign competition.

Jacques Attali, president of the European Bank for Reconstruction and Development, said the EC should throw out its trade agreements with Eastern Europe and start over.

The EC is not about to do that. But the EC’s executive commission has proposed substantially relaxing Western Europe’s barriers to Eastern Europe’s goods. “The growth of Central and Eastern Europe economies depends on the expansion of trade,” the commission asserted. “To sustain development and reform, they need to generate funds to finance the import of investment goods and to repay their external debt.”

Eastern European goods pose little threat to Western European producers, the commission argued. Last year, Eastern Europe accounted for only about 3% of the EC’s imports, slightly less than the share purchased from Norway.

For Eastern Europe, by contrast, the EC is a vital market. More than half of Eastern Europe’s exports went to the EC last year.

The commission proposal would end duties on Eastern European steel in 1996, one year ahead of schedule. Duties on textiles would be abolished in 1997 instead of 1998, and quotas on Eastern European agricultural products would be increased.

Smith said that opening EC markets to the east made sense for three reasons:

* “It is in our political interest to have a stable, prosperous Eastern Europe. Market access is important to Eastern Europe’s economic health and therefore its political health.”

* “It is healthier for us to import Eastern European goods than Eastern European workers.” He predicted a rush of immigrants to the west if Eastern Europeans are unable to find work at home.

* “Those countries are markets for Western goods. The better off they are, the better markets they’ll be.”

The commission’s proposal won a favorable hearing earlier this month from EC foreign ministers.